Krugman In '02: 'Greenspan Needs To Create A Housing Bubble'http://www.businessinsider.com/krugman-in-02-greenspan-needs-to-create-a-housing-bubble-2009-6/comments
en-usWed, 31 Dec 1969 19:00:00 -0500Tue, 26 Sep 2017 18:48:53 -0400Joe Weisenthalhttp://www.businessinsider.com/c/4cf6a34d49e2ae094f180000addictedWed, 01 Dec 2010 14:34:37 -0500http://www.businessinsider.com/c/4cf6a34d49e2ae094f180000
Thats almost completely wrong.
His point was that he couldn't see where any recovery would come from, unless Greenspan inflated a housing bubble.
Which is exactly what Greenspan did, and we got exactly what Krugman predicted under those circumstances, a recovery.
He quite clearly isn't advocating this step, but is saying that if such a step is taken it will work in the short run, which he was clearly right about.http://www.businessinsider.com/c/7ab9b9146964534af639fa00joe peelerTue, 07 Jul 2009 11:06:17 -0400http://www.businessinsider.com/c/7ab9b9146964534af639fa00
I think some of the posters here are either Krugman apologists or incredibly thick. He was obviously advocating antoher bubble.He was HOPING Greenspan could pull it off.The Fed(which is the most powerful central planning body in the world)creates the bubbles. They wouldn't have to fight inflation(an increase in the money supply)if they weren't causing it to begin with.When are mainstream economists going to realize that you can't replace real savings with artificial bank credit expansion.A buuble inevitable results and then comes the also inevitable bust.A good reof Austrian Business Cycle Theory is what Krugman and his slavish apologists need.http://www.businessinsider.com/c/4bb9b914afed394ac04d7d00Phil -ChicagoThu, 18 Jun 2009 03:33:03 -0400http://www.businessinsider.com/c/4bb9b914afed394ac04d7d00
Hmm... Interesting points David. I do not know how long the depression would be, as Joe W and yourself stated earlier, the intervention by government prevented the correction to occur as it should have. Prolonging the agony using the government is the exact wrong thing to do, however. Consider - if the government removed itself from the investment sector of the economy, interest rates would immediately increase which would definitely spark a contraction in GDP. How long? Well, as consumers invest more in savings due to higher interest rates, eventually more business and entrepreneurs would have the capital to create or increase production.
If I were getting 5% on a 10 year CD (please note examples only... I leave the technicals to you experts! :) - I would definitely start shoving lots of money into that account. I could see that financial institution start lending money out immediately at a higher interest (again, lets assume 6% as way of example), given the solid capital that is flowing into the account in fairly short order. I would say about a year maybe - I dont know...
The fundamental premise of course will never occur - the government will never remove itself from the investment sector since it needs to sell its debt, and the paper is a prime mechanism for doing so. Can anyone imagine the production possibilities that all the paper has removed from the economy? My God! We could literally be using computers with a light speed CPU frequency whilst in our hovercrafts... lol
http://www.businessinsider.com/c/57b9b914f553394a020bbf00DavidSWed, 17 Jun 2009 16:37:09 -0400http://www.businessinsider.com/c/57b9b914f553394a020bbf00
@Phil in Chicago,
I agree with your comments about Krugman. If you have tenure in Princeton's econ department, there's probably a good chance you favor interventionism!
With respect to the discussion on this page, if you view Krugman (and Bernanke) through an interventionist prism, his longstanding concerns about liquidity traps are well-founded. Moreover, you could plausibly argue that, in the absence of a totalitarian state or a democratic one with long, painful memories thus capable of exercising restraint (Germany comes to mind), interventionism is the only politically feasible strategy. Recessions are good and necessary, yet impractical.
"Capital needs to be invested into companies that produce a good or service based on demand by consumers" is exactly right in a textbook sense, but neither the US private sector--given its incentive structures and general lack of oversight--nor the US government--given election cycles and corruption via said private sector--has proven itself capable of allocating capital efficiently by a long shot.
I also agree that savings would contribute to investment in the long term, but here too the effects of confidence can't be overstated. In the shorter term, the increase in household savings rates will likely continue to reflect modest repayment of debts (as has been the case for the past few quarters), with relatively minimal effect on investment while at the same time reducing the money supply and--here comes Krugman--exacerbating the liquidity spiral!
So I'd argue that given that US households (and the private sector at large for that matter) have sustained very significant capital losses--both on their houses and their equity--thereby contributing to a decline in confidence manifesting as 1) a basic inability to take on more debt because the value of their collateral has dropped, 2) an unwillingness to take on debt due to a change in psychology and similarly 3) the same for capital investment. To your point, here's where the market bites the government in the ass, with all the usual mostly unintended (but entirely foreseeable) consequences.
IMO we're a long, long way (perhaps even a decade or more) from the point at which households would have enough savings to materially impact capital structure, and even then I'm not confident that the private sector would invest in the right thing (i.e. some form of domestic productive capacity) The mess won't really go away until the debt is paid off, inflated away, or defaulted on.
That said, I agree with you that this is where we should go (though as I said in my previous response it probably would spark a depression worse than the 1930s) but of course it is the opposite of what Krugman et al support -- a return to debt-fueled consumption, low savings rates, and the distinct possibility of an even more severe depression as the can is kicked still further down the road.
As an aside, I've got to wonder what Paul Volcker is thinking--or where he is right now for that matter, because Summers' fragile ego apparently won't let him into his meetings!http://www.businessinsider.com/c/cb37544bb052394a590d0400dudeWed, 17 Jun 2009 16:31:44 -0400http://www.businessinsider.com/c/cb37544bb052394a590d0400
"You know, part of the problem, even if you read this post in a manner that's most favorable to Dr. Krugman is that his only lens is that the government must intervene to stop recessions, rather than let the bust run its course, punishing those most exposed to the bubble or mania. This approach keeps getting harder and harder 'til now, when the aftermath of the boom threatens the entire economy."
Yup, we lurch from crisis to crisis now but there comes a point when the bills for the previous band-aids need to be paid.
Krugman's macro views are in the minority in the econ profession IMHO. However, they are the dominant view of the left and Democrats. That's why they get so much hearing and he has a NYT column. Krugman had said once before that envisioned himself and fellow social scientists solving the world's problems. I think he described himself as some sort of intellectual superhero. I don't doubt he and others really believe that all of these crisis and recessions are solvable.http://www.businessinsider.com/c/307a6c79d03f394af8c87d00Berend de BoerWed, 17 Jun 2009 15:11:12 -0400http://www.businessinsider.com/c/307a6c79d03f394af8c87d00
Krugman wrote a lot more: http://blog.mises.org/archives/010153.asp
He advocated every policy that Greenspan slavishly followed.http://www.businessinsider.com/c/307a6c79d73d394adfc47d00MarcoWed, 17 Jun 2009 15:02:44 -0400http://www.businessinsider.com/c/307a6c79d73d394adfc47d00
If he's not advocating creating another bubble, why didn't he say so? Why not point out the drawbacks, or recommend an alternative? He cites no other way to "fight" the recession. As others have noted, he's peddling the same medicine again this time! http://www.businessinsider.com/c/307a6c799a3d394abac47d00Joe WeisenthalWed, 17 Jun 2009 15:01:46 -0400http://www.businessinsider.com/c/307a6c799a3d394abac47d00
You know, part of the problem, even if you read this post in a manner that's most favorable to Dr. Krugman is that his only lens is that the government must intervene to stop recessions, rather than let the bust run its course, punishing those most exposed to the bubble or mania. This approach keeps getting harder and harder 'til now, when the aftermath of the boom threatens the entire economy.http://www.businessinsider.com/c/cb37544b6f3b394a0cfc0400anonymousWed, 17 Jun 2009 14:52:32 -0400http://www.businessinsider.com/c/cb37544b6f3b394a0cfc0400
There is a striking analogy to today. Many commentators have noted that excess liquidity and uncontrolled government spending got us into the current recession, and now it looks like Obama and Bernanke are trying to cure a hangover by drinking, by injecting huge amounts of liquidity and massively ramping up government spending.
We will probably be stuck in recession for years unless Bernanke somehow manages to reflate a bubble. But to take note of this is not to advocate it. Indeed, there would probably be even more disastrous consequences a few years down the line.
In 2009, Krugman is notoriously advocating even more massive stimulus, so in light of this it is tempting to reinterpret his words of 2002 as advocating a housing bubble. But a straight reading of his 2002 article doesn't support such a conclusion. And in any case, 2009 is a very different and far more severe than 2001-2002: truly global in nature, threatening a second worldwide depression and systemic failure of the global financial system. So his advocating drastic measure in 2009 does not mean he would have supported the same in 2002. If there's a smoking gun, we haven't seen it yet.http://www.businessinsider.com/c/cb37544b0b39394a6efb0400anonymousWed, 17 Jun 2009 14:42:19 -0400http://www.businessinsider.com/c/cb37544b0b39394a6efb0400
<i>"The fact that he stated a bubble was required in order to extricate from a recession is classic Keynes."</i>
Not just any recession. In the article, he stated that the current (2001-2002) recession was not a typical postwar recession (its causes were different), and therefore he didn't see any straightforward exit, and therefore more or less predicted a double-dip recession, barring some extraordinary attempt to reflate a bubble.
http://www.businessinsider.com/c/cb37544bda37394a24fb0400Phil - ChicagoWed, 17 Jun 2009 14:37:14 -0400http://www.businessinsider.com/c/cb37544bda37394a24fb0400
@DavidS - I agree with you that if in 01 the government did not intervene in the recession, things would look much better now. The fact is that Krugman does advocate an interventionist approach to recover from a recession. This must take the form of either reducing the interest rate (i.e. the time preference of consumption), inflating the money supply yielding higher prices, but only after the credit expansion by the banks occur, or increasing government spending - this of course results in lower investment by the private sector since the government will crowd out the scarce investment available resulting in further misallocation of capital (not to mention the fact that the government does not produce goods or services in demand by consumers... Pyramids anyone??)
I do not agree with your analysis about consumer spending and savings... Savings equals investment which will be used for rebuilding capital structure when all of this mess winds down. The problem is that as the government intervenes to reduce the amount of contraction it prevents capital from reallocating as it should. (Think, investing in your house vs into the Nasdaq)... Capital needs to be invested into companies that produce a good or service based on demand by consumers. The government is able to manipulate the time preference for consumption for awhile - but the pesky market will always come back and bite the government on its ass.
http://www.businessinsider.com/c/cb37544b2036394a46f90400anonymousWed, 17 Jun 2009 14:29:52 -0400http://www.businessinsider.com/c/cb37544b2036394a46f90400
Krugman is a bit of a smug ideologue and more of a partisan political commentator than an economist these days. But still, let's be fair. In the article, Krugman was more or less predicting a double dip recession in 2002. He felt that to avoid that outcome, Greenspan would need to blow up a housing bubble to replace the Nasdaq bubble, but did not make any statement advocating such a course and evidently didn't think that Greenspan could pull it off.
To me, that's just a straightforward reading of the article, and I have no reason to be charitable to Krugman or give him any benefit of the doubt.
In hindsight, there was no double-dip in 2002. The stock market low was reached a couple of months later in October 2002 and the housing bubble succeeded all too well.
http://www.businessinsider.com/c/307a6c79e034394a00b77d00ReallyWed, 17 Jun 2009 14:24:32 -0400http://www.businessinsider.com/c/307a6c79e034394a00b77d00
This is pretty hilarious the way so many of you guys let your pre-conceived notions kill your analytical thinking. It's obvious Krugman is a Keynesian and he's all for 'kicking the bucket down the road' (as someone up there put it). The guy was analyzing the situation based on his keynesian thinking. But so many of you lower yourself to attacking the chick that just pulled the quote/article out. Grow up fellas.http://www.businessinsider.com/c/3ab9b9149731394aae0cd500KlausWed, 17 Jun 2009 14:10:31 -0400http://www.businessinsider.com/c/3ab9b9149731394aae0cd500
Wow, I thought this guy was a nobel laureate. Didn't Obama have him in to spitball ways for fixing this crisis? Maybe that's why Obama won't release visitor logs to the white house.
Krugman - the bubble boy - clearly advocated a housing bubble to replace the dotcom bubble. Way to go, Bubble Boy!
This guy is wreckless - a menace to society. His current proposal to solve this mess is massive deficit spending way into the trillions. And when that bubble bursts what happens next, what do we do then? Any bright ideas bubble boy? The next collapse won't be nearly as nice as this one.http://www.businessinsider.com/c/3ab9b9140731394a730cd500DavidSWed, 17 Jun 2009 14:08:06 -0400http://www.businessinsider.com/c/3ab9b9140731394a730cd500
Krugman didn't advocate a housing boom, he was just echoing what Pimco said, but I do think he could have helped legitimize the idea given that he (and the Princeton econ department) is known for its research re: deflation.
Moreover, as is the case today, in 2001 there was no obvious source for future US economic growth (manufacturing and technology having been ruled out for the most part by then), so the Fed put its faith in housing and shoddy paper.
@Joe Weisenthal et al:
We would have had a very similar, though far less severe crisis in 2001-2002+, if the Fed has not "kicked the can down the road" by creating the housing bubble (though everyone deserves their share of blame for the orgy of consumption that followed). Many of the same problems existed back then, though by far the most critical were--and continue to be--the size of US private sector debt and the US current account deficit.
As a result, many economists, Krugman included, were deeply afraid of an extended deflationary period during the late 1990s and early 2000s (this is when "Helicopter" Ben first earned this moniker), so in an attempt to ward off deflation, the Fed flooded the system with liquidity. Given the optimism present at the time, willingness to borrow among the private sector (and public sector) was very high, and greater indebtedness while sharply increasing the likelihood of a liquidity spiral and deflation if/when sentiment became negative. But GDP growth resumed, so all was well, for a while.
If the Fed had allowed a real recession in 2001-2002+, and had resulted in a significant increase in unemployment, sentiment could have deteriorated to the extent that savings rates would have grown, private sector debt would be repaid, and the impact of the global imbalances characterized by over-consumption in the US & attendant Chinese recycling of USD denominated debt and excessive reliance on export-led growth by China, Germany, and Japan (the "global savings glut") would have been DRASTICALLY reduced.
Instead we find ourselves in an incredible position where Fed credibility has effectively been destroyed, the USD's reserve currency status has become extraordinarily tenuous, public and private sector debt has exploded to the extent that many institutions and households are insolvent and will almost certainly never be able to pay off debts (US HHs have only repaid 3.1% of debt during 4Q2008 and 1Q2009 according to Martin Wolf at the FT), and a bona fide liquidity spiral, caused in large part by this relatively modest increase in savings rates, has emerged.
This is exactly why the inflation vs. deflation debate is so relevant.
If households continue to increase savings rates (which, 2001-2002 aside, is virtually a given during a >= moderate recession) and consumer spending retreats from > 72% to a more sustainable 63% to 66% of US GDP, it will result in an outright collapse in economic activity, arguably worse than the Great Depression, _eventually_ paving the way for sustainable global expansion. If, however we kick the can, and private-sector confidence improves to the extent that consumers are willing to borrow again soon (and fiscal stimulus via deficit spending has the desired effect), a depression can probably be postponed for a decade, at the likely cost of a sustained period of very high inflation and the possible loss of the USD's reserve currency status.
In other words, we are nowhere near out of the woods because these imbalances have barely improved at all, and our only policy choices are Scylla or Charybdis.
http://www.businessinsider.com/c/dc37544b6126394ac73f2500SDWed, 17 Jun 2009 13:22:41 -0400http://www.businessinsider.com/c/dc37544b6126394ac73f2500
Krugman is backpedaling here. Reading the quote "in context" doesn't change it at all. He stated what he thought the Fed "needs to do".
In fairness, I'm sure he didn't envision back then what a monster the housing bubble would become (few did). But he was clearly on board with the "inflate another bubble" policy.
What he was advocating back then (re-inflating) isn't much different than what he is advocating now. So, I don't know why it would surprise anyone that quote came from him. Like others have noted, it's in line with the Keynesian nonsense that he advocates to this day.http://www.businessinsider.com/c/dc37544b1125394a873f2500TravisWed, 17 Jun 2009 13:17:05 -0400http://www.businessinsider.com/c/dc37544b1125394a873f2500
Instead of beginning his response, like this:
"One of the funny aspects of being a somewhat, um, forceful writer..."
Krugman really meant to say:
"One of the funny aspects of being a somewhat, um, forceful proponent of Soviet-style central planning...."
http://www.businessinsider.com/c/dc37544b7022394ad53e2500JohnWed, 17 Jun 2009 13:05:52 -0400http://www.businessinsider.com/c/dc37544b7022394ad53e2500
Do we need a huge deficit/inflation bubble to replace the house bubble?http://www.businessinsider.com/c/dc37544bdc20394a5b3e2500TravisWed, 17 Jun 2009 12:59:07 -0400http://www.businessinsider.com/c/dc37544bdc20394a5b3e2500
HA ha. I especially love the part where Krugman tries to cover his ass by claiming it depends on what the definition of is is.
http://www.businessinsider.com/c/dc37544b4e20394a383e2500dudeWed, 17 Jun 2009 12:56:46 -0400http://www.businessinsider.com/c/dc37544b4e20394a383e2500
I saw the link yesterday and was going to email it in or link it in a comment but didn't cause it wasn't too damaging to Krugman. His predictive economic analysis is all wrong and should be held to account for that. However, my interpretation is that somebody else is making the comment and that wouldn't be good the economy overall. That is you had one mess just blow up so Greenspan will create a another to distract from the first.
Yeah, I'm what people on the left call a wingnut but I hate intellectual dishonesty just as much as leftists so I can't turn a blind eye to a bad interpretation. Krugman on the other hand has no problem doing to people what some are trying to do with this article. http://www.businessinsider.com/c/dc37544b4f1d394a823d2500BobWed, 17 Jun 2009 12:43:59 -0400http://www.businessinsider.com/c/dc37544b4f1d394a823d2500
I read Krugman's 2002 article and IMO he is not endorsing creating a housing bubble he is merely commenting on what Greenspan appears to be doing. No smoking gun here. http://www.businessinsider.com/c/3ab9b914eb1c394a3c06d500Joe WeisenthalWed, 17 Jun 2009 12:42:19 -0400http://www.businessinsider.com/c/3ab9b914eb1c394a3c06d500
"So according to http://krugman.blogs.nytimes.com/2009/06/17/and-i-was-on-the-grassy-knoll-too/ - he was not advocating policy. Okay, so what? The fact that he stated a bubble was required in order to extricate from a recession is classic Keynes."
Exactly.http://www.businessinsider.com/c/9f7a6c798e1b394ac54aeb00St PatrickWed, 17 Jun 2009 12:36:30 -0400http://www.businessinsider.com/c/9f7a6c798e1b394ac54aeb00
"And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."
The whole quote is necessary to put the statement in context. Without the first part, I read his stating what Greenspan "needs" to do as advocating that action. Putting it in context, I read it as describing the problem using an analogy offered by another commentator, not advocating the action.http://www.businessinsider.com/c/3ab9b914381b394a8105d500EdwardWed, 17 Jun 2009 12:35:04 -0400http://www.businessinsider.com/c/3ab9b914381b394a8105d500
To connect the dots... During the policy discussion about how to resolve the last recession in 2001, Krugman adopted a position which was one-sided and didn't adequately consider the dangers in the position which he himself suggested. I find a lot of resonance now that Krugman is vociferously pushing reflation today as a policy option. If you read his editorials, he focuses entirely on the problem of deflation and appears to ignore any other possible dangers. There is something wrong with someone who keeps making the same kind of mistakes.http://www.businessinsider.com/c/dc37544b1d1b394a163d2500Phil - ChicagoWed, 17 Jun 2009 12:34:36 -0400http://www.businessinsider.com/c/dc37544b1d1b394a163d2500
So according to http://krugman.blogs.nytimes.com/2009/06/17/and-i-was-on-the-grassy-knoll-too/ - he was not advocating policy. Okay, so what? The fact that he stated a bubble was required in order to extricate from a recession is classic Keynes. And despite what everyone wants to admit, Keynes and his theories have been shown to be incorrect time and time again. Krugman doesnt think a bubble is required for recessions? Then dont advocating lowering interest rates, expanding the money supply, and increasing government spending and intervention. Put your money where your mouth is you pinhead.
http://www.businessinsider.com/c/3ab9b914b719394ac604d500JoeWed, 17 Jun 2009 12:28:39 -0400http://www.businessinsider.com/c/3ab9b914b719394ac604d500
The mother of all bubbles is the one going on today```` 14.8 Trillion that the Banksters stole from the US and over 10 Trillion in Europe and they are exchanging there derivatives for the nation's wealth in order to survive and will lead to the destruction of are and of most of the worlds economies when the 700 Trillion to 1.5 Quatrillion Derivative Death Star goes (******)!http://www.businessinsider.com/c/dc37544b3218394a623c2500Phil - ChicagoWed, 17 Jun 2009 12:22:10 -0400http://www.businessinsider.com/c/dc37544b3218394a623c2500
So people on this blog are stating that Krugman did not advocate a housing boom in order to curtail the recession. This despite the fact that classic Keynes theory is to lower interest rates and increase money supply. This despite the fact that Krugman is advocating the exact same policy now, except the Fed can not lower the interest rate below 0%.
C'mon people, you seriously need to analyze the logic - Krugman is good at making non provable assertions and policies. For example, if the economy remains in a recession, it is either because a) the government did not stimulate or b) the government did not stimulate enough... How is that even provable? Despite the historical record of government stimulus causing massive disruptions in the economy and doing the exact opposite of the intended effect, one can still make the argument that the policy was not pursued to a greater degree. http://www.businessinsider.com/c/3ab9b9140718394a3d04d500SpoonerWed, 17 Jun 2009 12:21:27 -0400http://www.businessinsider.com/c/3ab9b9140718394a3d04d500
McArdle knows absolutely nothing about economics. Please stop linking to her. She is a complete hack who started an "economics and cooking" blog but has absolutely no background in the subject (well, perhaps cooking, who knows). This bit of sophistry only proves it. http://www.businessinsider.com/c/dc37544b8317394a213c2500chadWed, 17 Jun 2009 12:19:15 -0400http://www.businessinsider.com/c/dc37544b8317394a213c2500
Joe, your not wrong in looking at this in a negative light, but where you're way off base is saying that the way the current bubble worked out was what he was inferring. Recommending a housing bubble is not the same as recommending zero down payment, option ARMs to poor people so they can own 5 houses. You know as well as anyone that wasn't his intention.http://www.businessinsider.com/c/dc37544ba416394ae03b2500NoSingleOneWed, 17 Jun 2009 12:15:32 -0400http://www.businessinsider.com/c/dc37544ba416394ae03b2500
Joe, lamest "gotcha" I have seen in a long time. It's good to revisit Krugman's comments, but the level of proof that he was an advocate for Greenspan's policies gets a nice big fat "fail".http://www.businessinsider.com/c/dc37544b9814394a8c382500cantandwillWed, 17 Jun 2009 12:06:47 -0400http://www.businessinsider.com/c/dc37544b9814394a8c382500
"Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."
This is the kind of hate speech that incited Greenspan to do the reprehensible things he has done. There ought to be a law.....http://www.businessinsider.com/c/3ab9b9141114394a7e03d500RichWed, 17 Jun 2009 12:04:33 -0400http://www.businessinsider.com/c/3ab9b9141114394a7e03d500
Ooops., missed the update.
Of course, it shouldn't have been necessary.http://www.businessinsider.com/c/3ab9b914d513394a6f03d500RichWed, 17 Jun 2009 12:03:33 -0400http://www.businessinsider.com/c/3ab9b914d513394a6f03d500
Um, Joe:
http://krugman.blogs.nytimes.com/2009/06/17/and-i-was-on-the-grassy-knoll-too/http://www.businessinsider.com/c/dc37544b1813394a04382500BenWed, 17 Jun 2009 12:00:24 -0400http://www.businessinsider.com/c/dc37544b1813394a04382500
As much as I'd like to pin some blame on Krugman, his rebuttal is right. He didn't advocate a housing bubble; he merely pointed out the likely direction Greenspan was going to take.http://www.businessinsider.com/c/dc37544bc512394af3372500chadWed, 17 Jun 2009 11:59:01 -0400http://www.businessinsider.com/c/dc37544bc512394af3372500
People are going to interpret this however their preconceived notions will allow them too. I don't think Joe has it out for the man, but I've noticed he rarely gives the benefit of the doubt and (similar to most posters here) will tug any thread available and claim it unravels the whole sweater. Journalists thrive off this.
I'm indifferent. Either way, it finally gives Krugman bashers a reference when they say he's always wrong.
http://www.businessinsider.com/c/dc37544b9f12394ae9372500karlWed, 17 Jun 2009 11:58:23 -0400http://www.businessinsider.com/c/dc37544b9f12394ae9372500
@Joe: "I just see Krugman saying that the a recovery would require a vigorous household comeback and that the Fed needs to inflate a housing bubble to get that going."
But isn't that exactly correct? Without the housing bubble, the 2002 recession would have gone on a lot longer - we may have had a mini version of the depression we are experiencing now. Greenspan essentially postponed the day of reckoning - and indeed exacerbated it by tacking on another layer of indebtedness. Prescient analysis in 2002.http://www.businessinsider.com/c/3ab9b914d011394af602d500John from ConcordWed, 17 Jun 2009 11:54:56 -0400http://www.businessinsider.com/c/3ab9b914d011394af602d500
Using the same standards Dr K applies to GOP politicians, the housing bubble (and thus our current economic mess) is hereby his fault. Nice to know who's responsible.http://www.businessinsider.com/c/9f7a6c79cf11394a0045eb0013oclockWed, 17 Jun 2009 11:54:55 -0400http://www.businessinsider.com/c/9f7a6c79cf11394a0045eb00
"Sorry guys, really not sure how that's a pulled quote out of context. It is what it is.
Nowhere in there does he suggest that trying to create another bubble is a dangerous approach to fighting a recession. For him, it's textbook keynesianism."
I'm with you, Joe. That Krugman gave himself some wiggle room with his phrasing doesn't mean he wasn't endorsing the idea of a new bubble to replace the old. And his defense now is just wiggling in the room he gave himself originally.
What makes this relevant today? It goes to a question of integrity and trust in someone who puts himself forward as so much wiser than the rest of us. I find Krugman seriously lacking in integrity and therefore cannot trust anything he says. Knowing that is important to me, at least.
Thanks for posting this article, Joe.
http://www.businessinsider.com/c/dc37544bc711394abc372500cantandwillWed, 17 Jun 2009 11:54:47 -0400http://www.businessinsider.com/c/dc37544bc711394abc372500
I'm going to wait for Megan to drop the other shoe.http://www.businessinsider.com/c/dc37544be00f394a40372500ObotWed, 17 Jun 2009 11:46:40 -0400http://www.businessinsider.com/c/dc37544be00f394a40372500
The hitpiece was written in a secret right-wing meeting led by by Rush and Hannity and Fixed News was used as an outlet to discredit Paul Krugman's brilliance.http://www.businessinsider.com/c/3ab9b9141a0f394a0600d500AlexWed, 17 Jun 2009 11:43:22 -0400http://www.businessinsider.com/c/3ab9b9141a0f394a0600d500
I agree with other commenters, in re-reading the article it seemed to me like an analysis of where the fed was headed, not any kind of policy suggestion. You can mock Krugman for saying that it he didn't think it would work when *technically* it did for a little while (as long as you have a very loose definition of what constitutes "working" policy). But to say that it did work seems to kind of go against what I assume was a tongue-in-cheek claim that
The way to get over the .com bubble is a housing bubble. And the way to get out of the housing bust is massive government stimulus. It's a neverending stream of huge, economic endeavors with Krugman.
If you don't agree with Krugman's current policy prescriptions (which I get the impression you don't, and I tend toward the same side) you would do better to discuss those policy decisions than to rehash 7 year old quotes that may or may not have been taken WAY out of context. I lean towards may, but if you truly did read the story that way I can't argue with you on that. Even assuming that he was advocating the creation of a housing bubble in 2002 (quite the stretch IMO) what would this accomplish? Its' the equivalent of simply calling Krugman an idiot (which agree or disagree with his positions he clearly is not) and a cop-out from the real work that needs to be done of debating his current ideas. The man has a HUGE megaphone right now, and the way to counter that is with reasonable discussion, not shit-flinging like this.http://www.businessinsider.com/c/3ab9b914ec0e394afcffd500Fred RubenWed, 17 Jun 2009 11:42:36 -0400http://www.businessinsider.com/c/3ab9b914ec0e394afcffd500
The piper must be paid, one way or another. You can always pay with your children … Delay and it takes bigger bubbles or counter measures (lower interest, stimulus, Keynes on steroids) which then eventually in turn take greater … In the end the price must be paid. So yes Paul, let’s delay again and ask for even greater Stimulus … because we wouldn’t want to have to actually pay for what we have done. We will wait until we just blow up real good! http://www.usdebtclock.org/ Check out US unfunded liabilities per citizen. http://www.businessinsider.com/c/3ab9b914990e394adfffd500Joe WeisenthalWed, 17 Jun 2009 11:41:14 -0400http://www.businessinsider.com/c/3ab9b914990e394adfffd500
Guys, for what it's worth, I keep reading through this, and I'm not seeing the charitable explanation. I just see Krugman saying that the a recovery would require a vigorous household comeback and that the Fed needs to inflate a housing bubble to get that going.http://www.businessinsider.com/c/dc37544b370e394a81362500Unsolicted AnalysisWed, 17 Jun 2009 11:39:35 -0400http://www.businessinsider.com/c/dc37544b370e394a81362500
The much-feared double dip did not occur. If you read it as an analytical piece, the conclusion is dead wrong. The double-dip didn't happen and investors returned in droves as consumers began to spend. If you read it as policy advocacy, the outcome is the financial crisis. Either way, it's a train wreck, and it proves that Krugman gets things wrong - like every other economist.http://www.businessinsider.com/c/dc37544ba30d394a2c362500GeneWed, 17 Jun 2009 11:37:07 -0400http://www.businessinsider.com/c/dc37544ba30d394a2c362500
So Krugman's defense is that he said the only thing the Fed could do was to create a housing bubble, but he didn't say they SHOULD create a housing bubble. And yet the only thing he thinks the Govt can do in this recession is to inflate a vast bubble in government spending and programs. But this time around, apparently, he is on board. OK then.
http://www.businessinsider.com/c/3ab9b914ee0b394a67ffd500ErnstWed, 17 Jun 2009 11:29:50 -0400http://www.businessinsider.com/c/3ab9b914ee0b394a67ffd500
In 4 years, Paul Krugman will be claiming that he is not for the bloated Keynesian budget breaking deficits that will be hitting in fiscal year 2010 that will push interest rates on 10 year bonds to +7%. Instead, Krugman will claim that he is projecting what the Obama Administration had intended to do, not Krugman's own personal beliefs.
http://www.businessinsider.com/c/9f7a6c794e0a394a7543eb00CesarWed, 17 Jun 2009 11:22:54 -0400http://www.businessinsider.com/c/9f7a6c794e0a394a7543eb00
Here's some context.
A few months ago the vast majority of business economists mocked concerns about a ''double dip,'' a second leg to the downturn. But there were a few dogged iconoclasts out there, most notably Stephen Roach at Morgan Stanley. As I've repeatedly said in this column, the arguments of the double-dippers made a lot of sense. And their story now looks more plausible than ever.
The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.
Judging by Mr. Greenspan's remarkably cheerful recent testimony, he still thinks he can pull that off. But the Fed chairman's crystal ball has been cloudy lately; remember how he urged Congress to cut taxes to head off the risk of excessive budget surpluses? And a sober look at recent data is not encouraging.http://www.businessinsider.com/c/9f7a6c79200a394a6d43eb00TJWed, 17 Jun 2009 11:22:09 -0400http://www.businessinsider.com/c/9f7a6c79200a394a6d43eb00
Joe, Krugman doesn't say, "The only hope is to inflate a housing bubble" because he'd never write that badly. You can't say "The only hope" coherently without specifying "the only hope of WHAT?"
It's clear from reading the piece that Krugman is arguing that the only hope of a quick end to the then-current recession would be to inflate a housing bubble, and that he never bothers to realistically consider the consequences of that because he considers it very unlikely to happen.
http://www.businessinsider.com/c/3ab9b914f308394a98fed500Joe WeisenthalWed, 17 Jun 2009 11:17:07 -0400http://www.businessinsider.com/c/3ab9b914f308394a98fed500
Hey guys, I don't read it that way.
But anyway, I've updated with Krugman's response.http://www.businessinsider.com/c/9f7a6c79b008394a0141eb00CesarWed, 17 Jun 2009 11:16:00 -0400http://www.businessinsider.com/c/9f7a6c79b008394a0141eb00
Joe,
The original piece is about where Greenspan is going with his policies. Krugman states that cutting taxes and stimulating the economy is not the answer. He states that now that Greenspan has painted himself into a corner, the only out he has is to generate a housing bubble. He is not recommending Greenspan to do it.http://www.businessinsider.com/c/dc37544bec06394a01342500ErikWed, 17 Jun 2009 11:08:28 -0400http://www.businessinsider.com/c/dc37544bec06394a01342500
If you read the entire article, and if you read or are familiar with his entire body of writing at the time, Krugman is clearly criticizing the move to lower interest rates to entice mortgage leverage and consumption. He is NOT advising it. This article was actually very prescient, and to suggest otherwise suggests an agenda against Krugman. I am not a huge fan of Krugman's current prescriptions, but still I am disappointed to see such a post on this blog, which is either ill thought out or downright disingenuous. http://www.businessinsider.com/c/9f7a6c797005394a2f40eb00clawbackWed, 17 Jun 2009 11:02:08 -0400http://www.businessinsider.com/c/9f7a6c797005394a2f40eb00
You might consider reading Krugman's <a href="http://krugman.blogs.nytimes.com/2009/06/17/and-i-was-on-the-grassy-knoll-too/">own defense</a> of the piece. You don't have to believe his defense, but not even acknowledging it indicates you haven't done enough work.http://www.businessinsider.com/c/3ab9b914dd04394afefcd500Joe WeisenthalWed, 17 Jun 2009 10:59:41 -0400http://www.businessinsider.com/c/3ab9b914dd04394afefcd500
Dave:
So Krugman's line was basically: "The only hope is to inflate a housing bubble, but it probably won't happen"
That's about the worst statement you could've made in 2002. It did work, and it was a horrible idea.http://www.businessinsider.com/c/3ab9b9146804394acffcd500daveWed, 17 Jun 2009 10:57:44 -0400http://www.businessinsider.com/c/3ab9b9146804394acffcd500
Here's the end of the column:
But wishful thinking aside, I just don't understand the grounds for optimism. Who, exactly, is about to start spending a lot more? At this point it's a lot easier to tell a story about how the recovery will stall than about how it will speed up. And while I like movies with happy endings as much as the next guy, a movie isn't realistic unless the story line makes sense.
Krugman was saying that the stock market dot com bubble had been a fraud and that it would be wrong for Greenspan to create a housing bubble, the only magic trick Greenspan had left in his hat, and that it wouldnt work. It would be a second fraud less convincing than the first.
In retrospect, unfortunately, it did work for a few years. Joe Weisenthal DEFINITELY needs to read the link he himself posted. Because as so often in gotcha wingnut blogging it says THE OPPOSITE of what Megan McArdle said it said.
I have a slightly demented Republican friend over 65 and overweight who has repeatedly sworn that Barack Obama actually said in a speech "I'm going to make you all poorer." I tried to find what he meant and came up with a speech at New Orleans in which the O said "Every time a black woman who once had a job here finds herself homeless and without resources we are all poorer." This happens all the time now and Joe does not need to be part of it.http://www.businessinsider.com/c/3ab9b9146704394acefcd500Joe WeisenthalWed, 17 Jun 2009 10:57:43 -0400http://www.businessinsider.com/c/3ab9b9146704394acefcd500
"he was just saying it was the only way out of one."
Wow, that's depressing. So the only way we could've possibly overcome the internet bubble is to create a bubble that threatened to destroy the entire financial system if not the wellbeing of Americans for years to come.
Could he possibly believe that?http://www.businessinsider.com/c/dc37544b6d03394aa4322500Andy TWed, 17 Jun 2009 10:53:32 -0400http://www.businessinsider.com/c/dc37544b6d03394aa4322500
It was actually a spot on analysis....
He was correct in saying the only quick way out of that last bubble was to create another bubble, and so it was accomplished. From the way I read it, he was not advocating another bubble...he was just saying it was the only way out of one.http://www.businessinsider.com/c/3ab9b914f802394ac9f9d500Joe WeisenthalWed, 17 Jun 2009 10:51:36 -0400http://www.businessinsider.com/c/3ab9b914f802394ac9f9d500
Sorry guys, really not sure how that's a pulled quote out of context. It is what it is.
Nowhere in there does he suggest that trying to create another bubble is a dangerous approach to fighting a recession. For him, it's textbook keynesianism.
But if you guys can actually explain how I'm not getting the point of his column, please fire away.http://www.businessinsider.com/c/3ab9b9149202394ab2f9d500Phil - ChicagoWed, 17 Jun 2009 10:49:53 -0400http://www.businessinsider.com/c/3ab9b9149202394ab2f9d500
Of course Krugman wanted another bubble - let me quote Keynes (whose theories Krugman espouses)...
The remedy for the boom is not a higher rate of interest but a lower rate of interest! For that may enable the so-called boom to last. The right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and keeping us permanently in a quasi-boom (Keynes - 1964)
Krugman is not saying anything that hasnt been stated before by other Keynesian economists. Simply reading the plain language of their words one can certainly tell that artificially establishing a boom is a cure for recession. This has been advocated throughout the decades by Keynesian macro-economists. Of course, it is also what caused a recession in 1929 to become a 25 year experiment in human misery in the United States.
http://www.businessinsider.com/c/dc37544b9c01394a4d322500Helicopter BenWed, 17 Jun 2009 10:45:48 -0400http://www.businessinsider.com/c/dc37544b9c01394a4d322500
This is the problem with having a Fed whose job is too prick asset bubbles. It will only magnify the perceived need to be in the bubble business, creating the endless cycle of creating bubbles, pricking bubbles, creating bubbles, etc. Think the Fed will get the timing right? Not a chance. The result--greater volatility in the economic cycle.
http://www.businessinsider.com/c/3ab9b9140701394a4df9d500DonWed, 17 Jun 2009 10:43:19 -0400http://www.businessinsider.com/c/3ab9b9140701394a4df9d500
The funny thing is, if you read his piece, you realize that his economic analysis was flat wrong. He thought there wouldn't be any recovery soon.http://www.businessinsider.com/c/dc37544bf1ff384ac3312500WNWed, 17 Jun 2009 10:38:41 -0400http://www.businessinsider.com/c/dc37544bf1ff384ac3312500
sonambulato -
Here's the very next line in the article:
"Judging by Mr. Greenspan's remarkably cheerful recent testimony, he still thinks he can pull that off."
Got context?http://www.businessinsider.com/c/dc37544bbfff384a9a312500jgbrWed, 17 Jun 2009 10:37:51 -0400http://www.businessinsider.com/c/dc37544bbfff384a9a312500
"Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble"
Ouch Mr. Krugman.
I wonder what will come next?http://www.businessinsider.com/c/3ab9b9140dff384adbf8d500DWed, 17 Jun 2009 10:34:52 -0400http://www.businessinsider.com/c/3ab9b9140dff384adbf8d500
D - what do you mean? The Krugman piece was written during Bush's reign and Greenspan isn't exactly a Democrat.http://www.businessinsider.com/c/3ab9b914a1fe384ac0f8d500SomnambuloWed, 17 Jun 2009 10:33:05 -0400http://www.businessinsider.com/c/3ab9b914a1fe384ac0f8d500
Clawback - I disagree. Read the anguage very carefully:
"To fight this recession the Fed needs....needs soaring household spending to offset moribund business investment....Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble".
Sounds like he is either guessing what Greenspan is doing (not if this was written after Greenspan's policies were enacted), or cheerleading their next move, and he certainly isn't writing a piece about how Greenspan can cover his rear end. Judging from his rhetoric now where he tries to dispel fears about future inflation buy calling our current situation a "liquidity trap" rather than an issue of insolvency, I think we are seeing a pattern here. Krugman is, at a bare minimum, a part time shill for government policy.
http://www.businessinsider.com/c/dc37544b39fe384a16312500WNWed, 17 Jun 2009 10:31:21 -0400http://www.businessinsider.com/c/dc37544b39fe384a16312500
Context, man. Read the article. Don't follow McArdle's entirely intentional chop-job. http://www.businessinsider.com/c/9f7a6c7924fd384a503eeb00DWed, 17 Jun 2009 10:26:44 -0400http://www.businessinsider.com/c/9f7a6c7924fd384a503eeb00
Serriously, did FOX news buy a stake in Clusterstock?http://www.businessinsider.com/c/9f7a6c79d3fc384a3e3eeb00clawbackWed, 17 Jun 2009 10:25:23 -0400http://www.businessinsider.com/c/9f7a6c79d3fc384a3e3eeb00
Only an idiot or an ideologue could read the article and conclude that Krugman actually wanted a housing bubble. He was talking about Greenspan covering his ass.